Student Loans. The Next Big Bubble?

Like a bubbles, sooner or later, it will burst. The dark reality is that a lot of young professionals are defaulting on their students loans or struggling to repay them.

Can Student Loans Be Discharged in Bankruptcy?

The typical legal answer is “It Depends.” Although typically student loans cannot be discharged in a bankruptcy, there are specific circumstances when they can indeed be discharged. If the borrower can prove extenuating circumstances which are likely to continue for the life of the loan and the borrower has made good faith efforts to repay the loan, the loans can be discharged.

So What’s “Undue Hardship?”

The “undue hardship” test set in the Brunner test is a pretty high standard to meet. Basically, it means that it’s extremely difficult to meet, but not impossible. If you believe you may meet this standard then it is important you seek professional help to help you determine whether in fact you could benefit.

Getting Creative

With the Brunner test being extremely hard to meet, attorneys need to revisit the bankruptcy code and get creative when dealing with student loans. Some of the things to take into consideration are whether the loan is federal or private, and whether the “student loan” was truly used for school-related expenses or to pay the rent and groceries while attending school. There are various ways to navigate the intricacies of student loan debt and only a knowledgeable bankruptcy attorney can help you decide what’s the best option for each case.

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